Hedge Fund Alpha – Net Zero Using a Dynamic Factor Approach

9 Pages Posted: 13 Jun 2021

Date Written: June 4, 2021


Using a novel database, the NilssonHedge hedge fund database covering more than 350,000 return observations, we perform a large-scale multiple regression. We evaluate alpha against the Fama French five-factor model including momentum. Our findings are compatible with a net-zero alpha from hedge funds after fees, assuming frictionless factor implementation. On the positive side, our analysis reveals a substantial divergence between funds, leaving room for timing and selection opportunities within most of the strategies.

Keywords: Hedge Funds, Alpha persistence, Factor Regression, Return Dispersion

JEL Classification: G00

Suggested Citation

Lostado, Alex and Nilsson, Linus, Hedge Fund Alpha – Net Zero Using a Dynamic Factor Approach (June 4, 2021). Available at SSRN: https://ssrn.com/abstract=3860453 or http://dx.doi.org/10.2139/ssrn.3860453

Linus Nilsson

NilssonHedge.com ( email )

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